KP Tissue Inc.

Thank you, operator. And good morning, ladies and gentlemen.

My name is Mike Baldesarra. I'm the Director of Investor Relations at KP Tissue, Inc.

The purpose of this conference call is to review the financial results for the third quarter of 2020 for Kruger Products LP, which I'll refer to as KPLP going forward. With me this morning is Dino Bianco, our Chief Executive Officer at KP Tissue and Kruger Products LP; and Mark Holbrook, our Chief Financial Officer at KP Tissue and Kruger Products LP.

The following discussions and responses to questions contain forward-looking statements concerning the company's activities. Forward-looking statements involve known and unknown risks and uncertainties which could cause the company's actual results to differ materially from those in the forward-looking statements.

Investors are cautioned not to rely on these forward-looking statements. The company does not undertake to update these forward-looking statements except if required by applicable laws.

There is a page at the beginning of the written presentation, which contains the usual legal cautions, including as to forward-looking information, which you should be aware of. I'd like to point out that all figures expressed in today's call are in Canadian dollars unless otherwise stated.

The press release reporting our Q3 2020 results were published this morning and will be available from our website at kptissueinc.com. Please be aware that our MD&A will be posted on our website and will also be available on SEDAR.

Finally, I would like to ask that during the call, you refer to the presentation we prepared to accompany these discussions, which is also available on our website. [Operator Instructions] Thank you for your collaboration.

Ladies and gentlemen, I'll now turn the call over to Dino Bianco, our CEO. Dino?

Thank you, Mike. Good morning, everyone, and thank you for joining us on today's call.

I will begin with a brief review of our financial performance for the third quarter of 2020. I am quite pleased with our most recent results, which clearly reflect strong North American sales momentum in our Consumer business and underlines the benefits of the investments we have been making in our brands and business for future growth.

The one exception is still the Away-From-Home segment, which continues to face challenging market conditions, which I'll talk about later. As this pandemic began, we put in place a comprehensive program to keep our people safe, and keep our business going.

On both fronts, I am very pleased with what we have achieved. And with cases escalating across the world, we have added further safety protocols to protect our people.

I want to personally thank the over 2,500 employees across North America for the care and behavior they have exhibited to keep each other safe and to make sure we are getting tissue to our customers. Now for a review of the numbers.

Excluding the divested Mexico business, year-over-year revenue increased $25.7 million or 7.3% to $369.1 million. Adjusted EBITDA was up 5.1% to $46.2 million, primarily due to favorable sales impact, product mix and slightly lower cost of sales.

This was partially offset by higher SG&A costs primarily related to our ramp-up in marketing investments. By geography, Canadian sales increased by 4.7% and U.S.

sales grew by 11.5%. Next page, regarding market pulp prices, NBSK and eucalyptus prices in Canadian dollars decreased 2% and 8% year-over-year.

On a sequential basis, the declines were 6.1% and 4%, respectively. In U.S.

dollars, NBSK prices decreased slightly while eucalyptus prices remained relatively stable when we compare those to Q2. For the remainder of 2020 and into 2021, NBSK and BEK prices in U.S.

dollars are projected to increase, but these outlooks remain volatile given market conditions. On COVID-19, in the response to the second wave, we further enhanced our safety protocols.

The well-being of our employees is paramount. A safe work environment is essential, and we are continuing to make adjustments based on health, professional directions and best practices.

We have also made significant financial investments to keep our facilities safe. As a result, we have no evidence of site-based virus transmission and no significant impact to our business.

Our assets continued to perform very well, driven by our OpEx program and SKU reductions that we made earlier in the year. And finally, the consumer trust in our brands continues to be the underpinning of our success, especially during these periods of uncertainty, and that is being reflected in share, which I'll talk about in a second.

Let me give you an update on TAD Sherbrooke. We are less than 4 months away from the official start-up of this site.

It has been quite an endeavor to start-up a $575 million state-of-the-art facility during COVID. I want to thank our engineering and construction teams and our suppliers and partners for working safely, while keeping us on time and on budget.

All of our converting lines are now operating and performing well with TAD paper that is being received from our Memphis facility. Considering the very strong demand that is in the market right now, we are trying to increase our start-up curve on the converting lines.

Start-up costs in Q3 were $2.1 million as planned, and more costs will be incurred in Q4. The paper machine remains on track for our first quarter 2021 ramp-up.

We have strong demand from our existing and new customers across North America. This new production facility will help alleviate some of the capacity constraints that we are seeing in the recent quarters.

Our clear objective is to enhance our competitive position in the market, particularly in paper towels and to further support our share momentum. In this category, we foresee sustained positive consumer trends post COVID.

A new chapter in our history is about to start, and the state-of-the-art TAD Sherbrooke facility will soon become another important vector of growth in the ultra-premium North American segment. Let me turn to our OpEx program.

It is tracking effectively to the overall plan and has been rolled out to all our sites and most of our assets. These sites, as I mentioned earlier, performed very well in Q3 and, quite frankly, for the whole year at the end -- up to the end of Q3.

This is, thanks to a large part, to the high level of employee engagement, our continued focus on top-selling SKUs translates into better productivity, and we have drawn down inventory to meet increased demand. From June to September, we were able to rebuild some inventory on bathroom tissue and facial tissue, but paper tower supply continues to be tight for us and for the market.

Year-over-year manufacturing costs are lower, and we are investing further in enhanced maintenance to drive stronger asset performance and reliability. By year-end, we expect to reach the top end of the $15 million to $20 million run rate target on cost savings.

Our OpEx program was launched almost 2 years ago, and I'm proud to say that we have reached or exceeded our objectives to drive more capacity, asset reliability and cost savings. The timing of this OpEx program was perfect, unknown though at the time that we were going to approach 2020 with the COVID demand impact.

We will continue to expand this program across our assets and various elements into 2021. The level of engagement of our team has been truly exceptional, driving an enhanced culture of excellence.

We are also starting up our TAD Sherbrooke facility as an OpEx-ready greenfield. Let me move to our trademarks.

We have and continued to focus on investing to build our brands to bring the desired results in the market. Market share gains continued through the quarter, supported by strong shipments.

As indicated during the last conference call, our marketing investment significantly increased this quarter as we continue to build our brands. While the plan is to invest more in advertising and promotions going forward, the spend in Q3 also reflects a catch-up from lower levels in the first half of 2020.

Our new Unapologetically Human media campaign employing purpose-driven messaging is focused on connecting with our consumers. Hopefully, you've had a chance to see our bold new campaign that was recently launched and is receiving significant positive feedback across Canada and beyond.

Last month, we conducted a virtual fashion show to showcase our Cashmere Collection in support of the Canadian Cancer Society, our long-standing beneficiary. I'm delighted to say that the modified event which was necessitated by the pandemic was a resounding success.

We have also been working with other partners such as the NHL and Scotties' Tournament of Hearts to activate against these events in a COVID world. I've also been talking about ramping up the quality of our products, and I'm very proud to say that our softer, quality-improved Cashmere is now in market and in full distribution.

This is a perfect example of us investing in the future to reinforce our competitive position and our leadership market position. On our market share, the strong momentum, which began late in 2019, was further accelerated by demand related to COVID-19.

The data presented on Slides 11 and 12 is from Nielsen for dollar market share and represents a 52-week period, which ended October 3, 2020. So it essentially reflects year-to-date up to the end of third quarter.

We made good progress in all categories, specifically in bathroom tissue, our Cashmere and Purex brands are undisputed market leaders with a combined share of 36.4%. The market-leading share of 31.7%, our Scotties brand is the number one, and it's the brand that most consumers select when they need a facial tissue.

As discussed before, we see significant growth potential in the paper towel category and our sponge paper towels, continue to represent an excellent opportunity for share growth as we now stand with the strong number 2 position at 22%. COVID demand has also given us an opportunity to build distribution and sales of White Cloud in the U.S.

We are executing strong marketing investments to build this brand for today and for the future. On AFH, given the ongoing and, in fact, in some cases, worsening Covid situation, market conditions in the Away-From-Home segment continued to remain challenging as end user markets such as food service, lodging and property management were still soft.

AFH end markets are on a slow recovery that will be strongly influenced by COVID-19 protocols. We expect gradually quarterly sales improvements.

In fact, industry volumes have recovered from lows at the beginning of this pandemic, which were in the 40% to 50% range in Q2. The heightened focus on hand hygiene has kept AFH towel volumes strong as customers are switching from air dryers to paper towels.

We are confident this will have a sustainable impact on our business for today and the future. Unfortunately, with strong consumer demand, paper capacity was diverted to our Consumer products requiring more outsourcing for AFH.

This will continue to be a headwind for this business. One area that we continue to focus on is to retool our AFH assets and products to make the products designed more to be sold in Consumer channels.

We are seeing some successes of this already, particularly in the U.S. market.

AFH has taken an aggressive approach at implementing OpEx in their facilities and this has driven improved productivity. We continue to do the right things in AFH and performance will be dependent on end market recovery.

With that, I will now turn the call over to Mark, who will review our quarterly results.

Thank you, Dino, and good morning, ladies and gentlemen. I'll now ask you to turn to Slide 14, which reviews our financial performance for the third quarter.

Revenue, excluding Mexico, was up 7.3% to $369.1 million in the third quarter compared to $344 million for the same period last year. Adjusted EBITDA increased by $2.20 million to $46.2 million from $44 million in Q3 of last year and decreased sequentially by $18.2 million from $64.4 million in Q2 of 2020.

From a margin perspective, adjusted EBITDA increased to 12.5% from 11.9% last year and decreased from 16.7% in Q2 2020. In the third quarter of 2020, we recorded a net income of $18.5 million compared to a net income of $10.5 million last year.

The increase was primarily due to higher adjusted EBITDA and lower other expense, interest expense and income taxes. In the quarterly segmented view on Slide 15, Consumer revenue, excluding Mexico, increased by 14.4% year-over-year to reach $319.9 million.

In the Away-From-Home segment, revenue declined by 23.5% to $49.2 million. On a sequential basis, AFH revenue increased slightly over Q2.

Consumer segment adjusted EBITDA increased by $9.3 to $55.3 million, and adjusted EBITDA margin increased from 15.1% to 17.3%. For the Away-From-Home segment, adjusted EBITDA decreased by $1.6 million to a loss of $3.5 million and adjusted EBITDA margin stood at negative 7% versus negative 3% for the previous year.

Corporate and other costs were a loss of $5.6 million in Q3 2020 compared to a loss of $0.1 million for the prior year, an increase of $5.5 million, resulting primarily from $2.1 million of start-up costs related to TAD Sherbrooke and an increase in certain allocated overhead costs. On Slide 16, we review Q3 2020 revenue over Q3 2019, which was up by $25.1 million or 7.3%, excluding Mexico.

The increase is primarily attributable to volume increases in Canada and the U.S., primarily related to COVID-19 demand. This was partially offset by lower AFH revenue negatively impacted by COVID-19.

By geography, Canadian sales increased by $10.1 million or 4.7%. And in the U.S., sales increased by $15.1 million or 11.5%.

For your information, the revenue of the Mexico operations divested in Q3 last year was $25.4 million for the third quarter of 2019. On Slide 17, we provide further insight into our Q3 2020 adjusted EBITDA, which increased year-over-year by $2.2 million or 5.1% to $46.2 million.

Gross margin for the quarter also increased from 14.2% to 16.6%. The increase in adjusted EBITDA was driven by a combination of factors, including favorable sales impact and mix, lower pulp costs, benefits of the OpEx program and the reduced number of SKUs.

These elements were partially offset by increased SG&A costs, higher manufacturing costs related to COVID-19, higher freight and warehousing costs and increased outsourcing costs. For a sequential perspective, let's turn to Slide 18, where we compare Q3 2020 to Q2 2020 revenue.

Quarter-over-quarter revenues decreased by $17.7 million or 4.6%. Consumer segment revenue decreased by 5.4% due to lower volume in the U.S.

Consumer segment, following a significant spike in Q2 demand, along with U.S. Consumer segment contractual selling prices tied to pulp prices moderating lower, unfavorable FX, and partially, these were offset by significantly higher Canadian Consumer sales.

On the sequential comparison for the same period, Away-From-Home increased by 1.5% and reflecting a slight recovery in end-user markets, as Dino indicated before. By geography, revenue in Canada increased by $4.8 million or 2.2%, while U.S.

revenue decreased by $22.5 million or 13.4% after a very strong Q2, and reflecting a 2- to 3-week lag in COVID-19-related demand when compared to Canada. On Slide 19, Q3 adjusted EBITDA decreased sequentially by $18.2 million or 28.2% compared to Q2.

And gross margin declined from an exceptional level of 19.8% to 16.6%. The decrease in adjusted EBITDA was primarily due to the impact of lower sales in the U.S.

Consumer segment, as previously discussed, higher SG&A expenses related to increased advertising, a larger loss in AFH and the TAD Sherbrooke start-up costs. I'll now turn our -- to our balance sheet and financial position on Slide 20.

Our cash position was $117.5 million at the end of Q3 2020, a decline from $144.2 million at the end of Q2. The cash position includes $34 million in the TAD Sherbrooke entity at the end of Q3.

Overall, net debt at quarter end stood at $592.5 million, up $31.4 million from $561.1 million at the end of Q2 2020. Our net debt to trailing 12-month adjusted EBITDA ratio has increased slightly to 2.9x, but has remained relatively low due to the significant increase in latest 12 months adjusted EBITDA.

I'll conclude my section by reviewing the CapEx on Slide 21. Q3 2020 CapEx totaled $70.4 million, including $65.1 million for TAD Sherbrooke facility.

At quarter end, accrued and unpaid capital spending on this facility stood at $43.3 million. Looking at the full year 2020, we expect regular CapEx to be in the $30 million to $40 million range, while the TAD Sherbrooke CapEx is now expected to be between $300 million to $320 million, slightly lower than our previous outlook due to the timing of project payments.

Total CapEx for fiscal 2020 is expected to be in the range from $330 million to $360 million. Thank you for your attention, and I'll now turn the call back over to Dino.

Thank you, Mark. Turning to Slide 22.

I'd like to again highlight our plan to continuously reinvest in our brands and the business for continued growth with very initiatives to drive Consumer revenue growth and share. We are investing in our strong brands to build our share in Canada while expanding our White Cloud brand in the United States.

As I mentioned a few minutes ago, we are very pleased with the start-up progress of the TAD Sherbrooke facility and infused with the anticipated strong demand this facility will generate in the ultra-premium segment. The additional tissue capacity is fully committed and supported by a sales pipeline of new and existing customers.

Our ongoing OpEx program is successful, creating a more efficient supply chain network. The benefits have been very apparent during the COVID-19 crisis, which allowed us to navigate through the pandemic in a much stronger position.

Considering the anticipated slow recovery in AFH end user markets, we are doing what is necessary to improve performance in this segment and to make sure that this segment is ready to take advantage of a recovery when it happens. We continue to develop our organizational capability, which is rooted in a strong, passionate, results-driven and inclusive culture.

Driving future growth by exceeding consumer and retailer needs with quality products is job number one. For our shareholders, we are fully committed to reinvest in the business to deliver strong results for today and for the future.

In terms of our outlook, we expect demand for our products to remain healthy in the Consumer segment and a slow recovery in the Away-From-Home segment. We will continue to reinvest in our brands and our business and anticipate some extra costs to meet this high demand.

Therefore, for the fourth quarter, we expect adjusted EBITDA to be below both Q3 2020 and Q4 2019 results. As a final word, I wish to reiterate my sincere thanks to our highly dedicated team, which is committed to meeting consumer and retailer needs across North America, despite the ongoing COVID challenges.

Our people and our culture are a true differentiator for us. We will now be happy to take your questions.

Great to see the OpEx at the top end of the target. But I think when the program was devised, you didn't have any kind of SKU reduction envisioned in that.

I'm just wondering how much that -- if you could quantify that benefit? And then what are the big wins in the OpEx besides SKU?

Sorry, Paul, you dropped out.

Oh, really? Okay, sorry.

Well, the question was around the OpEx target of $15 million to $20 million, it's good to see that you're at the high end. Just wondering when the program was envisioned, I don't think SKU reduction was in there.

And if you could quantify that? And then also just talk about some of the big wins you've had in OpEx besides that SKU reduction?

Yes. Sure.

So you're absolutely -- the $15 million to $20 million that I'm quoting is really related just to OpEx. You'll see the SKU reduction benefit weaving its way in lower cost, but I don't usually quote that as part of the OpEx program.

I treat that as a separate item. I don't have a specific dollar as it relates to the SKU reduction.

I would tell you that we have done some small samples at some of our sites to see what benefit we're getting. And we're usually getting 1 to 2 points of OEE improvement on the assets that varies depending on how complicated those assets were to start with.

So I'd say there's about 1 to 2 points OEE. I know that's not going to mean a lot for you, if I can't translate it into a dollar number.

But let's say, in some assets where I've had 4 or 5 points of OEE improvement, 1 to 2 may have come from OEE, just an order of magnitude -- sorry, 1 to 2 may have come from SKU decomplexity, just as an order of magnitude. And if we look at the number of SKUs, we talked about this, and so has every other CPG company, regardless of industry, we essentially -- during the intensity of COVID and continuing today because we are still in a very intense COCVID period, we've essentially have the number of SKUs that we produce in North America.

And I'm not talking about AFH SKUs, but primarily consumer SKUs. We have the number of SKUs.

We see that number going up slightly next year. It's not sustainable where it is.

There are certain brands and sizes that we aren't serving to the market. So we see that going back.

By the time, I think all is said and done, we will have -- if you look at pre COVID, post COVID in '21, we'll probably be down one third of SKUs.

Okay. Great.

And then maybe you could just talk about the order file for TAD Sherbrooke, given that it's 4 weeks away. And what are the logistics of getting paper from Memphis up to Sherbrooke to run the converting lines?

Yes. It's not a situation you want to have permanently.

TAD paper doesn't travel well. You have to cut the diameters, so you're producing it efficiently.

So it's just a short period, Paul. It's obviously just to make sure we can commission our converting lines with equivalent paper that will be produced at the Sherbrooke facility.

And I thank our Memphis team for doing that. I think they'd rather convert it and sell it in the marketplace, but they know they have to supply Sherbrooke while we're commissioning.

And then as far as the order book, we are at a sold position. We are at an oversold position.

We are carefully managing -- we thought we could bring in a lot of new customers. The reality is our focus has primarily been on servicing the growth of our existing customers first.

So we have retrenched to make sure that the customers that we have and the growth that they have planned with our business is being met before we go get new customers at this stage. And that ties to both our branded product in Canada and the U.S.

and then any private label supply that we do in the U.S. So the big opportunity area that I'm going to continue to push on, and I'm pushing on it already, is to get a faster start-up of that site without jeopardizing the startup, without risking anything is to have that site do more of a vertical start-up.

We put OpEx in there. We've got a great team that has been trained well.

We're seeing positive elements of that already. We've invested heavily in technology.

So the key for us is can we beat our ramp-up curve, and that will provide more capacity for North America.

It's Kasia from TD. You referenced Away-From-Home volume declines of 15% to 20% year-over-year, which, if I recall, is an improvement from the 40% to 50% you noted last quarter.

Can you just speak to what you're seeing on the consumer side in terms of year-over-year volume growth and how that has stepped down since earlier this year?

Yes. I mean, it's been a -- for anybody that's -- trying to manage our Consumer product that's in high demand, it has been quite a wild journey.

And it's gone in stages. Before I give you some numbers, let me just play off the journey.

So with -- in March with stay-at-home mandates, we saw a lot of consumers pantry loading across North America, and the product they primarily pantry loaded was bathroom tissue, expecting to be at home, not going out, a critical product that they needed. So we saw the big spike that happened in March.

We saw a bit of it in paper towel and facial, but mostly in bathroom tissue. And then as the pipeline starting to fill, the stay-at-home mandates were loosened, we saw a gradual return to, what I would call, normality.

The numbers were still high and they were high because people were at home more. So they weren't traveling.

They weren't going to restaurants and sporting events and hotels. So they were using our products more at home.

So we did see more of a stabilization as you came into May, June and, let's say, July, a little more stability. What we started to see from a context point of view, is in the mid-summer and right into now, increased demand for paper towel.

And that was driven a little bit by some pantry loading. It was driven by people at home, and it was primarily driven by people cleaning more.

So that was a change in behavior versus COVID. For bathroom tissue, there really wasn't a change in behavior.

It was more just being at home. But for paper towel, we're seeing a change in behavior.

We're seeing greater usage and greater cleaning. And I'm sure everybody on this call can relate to what I'm saying in terms of the need for paper towel.

So that's where the market is now very tight on paper towel. If I give you a couple of numbers, and everybody is going to give you a bit of different numbers.

But if you look at bathroom tissue on a tonnage basis -- I won't quote dollars because it can be confusing, but this is the category, by the way. Since COVID, the tissue -- the bathroom tissue category is up 16%, but for the latest 12 weeks, it's only up 6%.

So it has moderated. A lot of that 16% was driven by what was going on in March and April and moderated to about 6%.

If you look at paper towels, it's up 17%, but the last 12 weeks is up 12%. So that shows the growth that I've talked to you about with respect to paper towel usage.

And then facial tissue, since COVID, is up about 10%, but the latest 12 weeks have been up about 5%. So those are some numbers for you that reflect what's going on in the consumer space.

Those are Canadian numbers. I would say the U.S.

numbers are very similar in terms of the behavior that's going on there, what we're seeing in that marketplace. The one thing I would say, difference between the U.S.

and Canada, it seems there was a couple of week lag in the spikes, in the declines that have been happening. I'm generalizing because every state is a little different, but that's generally what we're seeing.

Okay. And those numbers that you just quoted, are those KPLP numbers or industry numbers?

Those are industry numbers that as reported by Nielsen. We have done better, which is why we're growing share.

I'm not going to quote our growth, specific growth. But obviously, if you're growing share, you're doing better than those numbers because those are category numbers.

Great. And what are your inventory levels, like right now?

And were you able to rebuild in Q3?

Yes. We were able to rebuild some bathroom tissue and facial tissue in the June to early September period, not much, not back to levels we were, but we were at least quite stable, I think if you've been in stores, you would have seen good supply.

We were meeting the orders. We were meeting the increased demand, that number I gave you in terms of the plus 6%, we were able to meet that and more.

Paper towel continues to be tight. And again, it's tight in the industry.

I think anybody who produce paper towel, you will have heard them say it's a tight category. It's hard to turn those machines.

Those machines already run full out, virtually full out. So it's hard to just add another shift or turn one on that's been mothballed.

So it's hard to respond that quickly. But I'd say that with TAD2 for us -- personally, with that TAD2 coming on, that will help relieve some of the inventory pressures and supply pressures we're getting right now.

Great. And last one for me.

Just -- I think there's an Away-From-Home price hike that you talked about last quarter due to come in on September 1. How is that rolling along?

Yes. What we did on that one, Kasia, is we were a little surgical.

We didn't go across every category across every region. We had some products that were, quite frankly, underwater.

We hadn't priced them for a while. So we took an opportunistic approach to how we corrected some pricing in the marketplace.

It has yielded some benefit. It's not a significant number yet or it's not a significant number in our financials right now.

But it helped just get us back to some level of profitability that we should expect from those products.

You mentioned that you're doing better than industry growth, taking market share. So on the advertising spend, should we expect a similar pace in Q4 and throughout 2021?

Yes. The short and long answer is yes.

What we did is we came into this year expecting increase in our advertising. Then when COVID hit, we put some delays on what we were doing.

Obviously, everything changed. The NHL changed.

Our Cashmere changed. What we wanted to put on air change.

So we took a bit of a hiatus as we regrouped on our spend, primarily through Q2 and early parts of Q3. And then we have -- since about August and into September and for the balance of this year, we came in very strong.

We did Cashmere Collection. We just launched the BigAssist with the NHL.

We spent -- ramped up our media investment behind our brand new Unapologetically Human campaign. And so you'll see more of that in Q4, ramp-up in advertising from an unusually low base in Q2.

And then next year, we'll do the same. I mean, we will continue to support our brands.

We've got a good story to tell. We've got TAD2 coming on board.

We've got great partnerships, and we will continue to ramp-up our advertising to support our brands. And also with White Cloud in the U.S.

COVID has opened the door for us to get some listings in the U.S. at accounts that we've been working with for a number of years.

Now that we've got those listings, it's ours to keep them, and we are investing in local markets. We're not doing national advertising in the U.S.

because we don't have that presence. We are advertising in markets where we're carried to make sure we build our consumer affinity with White Cloud.

That's great color. That actually brings me to my next question.

Given that TAD Sherbrooke is going to be focusing on servicing existing customers first, do you foresee an increase in customer concentration? Or will that be offset by the new accounts in the U.S.?

Yes. I think that's a great question.

I think it will represent the same diversification we have today. We're not putting it all to one customer, for instance.

We are spreading it out with existing customers, including the U.S. customers.

So the diversification will replicate essentially what we have today, and we are very well diversified today with our customers.

I wanted to ask you about we've seen other grocery chains like Loblaws announced fees for suppliers. So how are you responding to that?

Do you have some potential price hikes under consideration?

I mean, you asked me this question in Q2. It was just Walmart at that time.

As Loblaw has come on board now. I'm -- speaking as an industry veteran, I am disappointed with that behavior.

Here we are scrambling, most of this industry is scrambling to meet supply, trying to work with customers, incurring extra costs and to have that come through is disappointing. There's always fees and costs and so forth, I understand.

But that one, I would say, is disappointing in the way that it's being done at the time that it's being done. As we are -- as far as we are concerned, we are ignoring those acts and really working with customers like we normally would about how do we build our business together in the following year.

We've got lots of great activity going on with our business. So our approach is, we are doing business plans for them.

So that's how we're approaching next year.

Fair enough. And Dino, can you speak more to some of the innovation that maybe you have planned in Q4 given the higher advertising spend?

Yes. So Hamir, I think you're seeing increased advertising.

You're seeing the NHL program coming on board. So you'll see more of that, an increase in social media, an increase in e-comm, an increase in ethnic communication.

So those are really the areas that we focused on. And then I talked earlier about White Cloud, investing behind that.

As we get into next year, you'll see more of that plus with our new TAD products that are coming to market. We will be supporting those.

We've got some strong innovation, high-quality products that are going to hit the market, so we will be investing in that. And then we've got some other innovation and quality improvements that I'm not going to talk about right now that will also be coming out next year, and that will be another area of focus for our advertising.

And should we assume that given the quality improvements that there'd be an element of desheeting as part of the innovation?

No, you're not going to see that as a conscious effort. Obviously, when you produce a TAD product or a non-TAD product, you get some variations there, but we are not going to take an existing product.

There's been no material plans for doing desheeting next year.

Just one more for me. You've been able to rebuild some of your inventory in bathroom and facial tissue.

Paper towel obviously is still tight. Looking a step down the supply chain, do you have visibility on retailer inventory levels?

And whether they might take a pause or accelerate purchases in Q4?

Yes. I mean I don't have a clear lens there.

I have -- in some customers, we have deeper knowledge of their inventory sum that's more anecdotal. I would say that they are similar to us.

They're not stockpiling. They don't have warehouses full of inventory.

What they're getting is going right to the shelf. It is generally a flow-through business on tissue.

It's a big product. There's not a lot of room to store it.

So it's moving right through to the shelf. And you saw a bit what also happened recently across the country -- well, across North America is a bit of another pantry load.

It wasn't severe as the first one. So you had some whiteouts or outages at shelf that are slowly getting back to normal.

I think customers -- look, here is what I would also say, I think customers also recognize that a lot of this behavior on the consumer side will be there post COVID. And the 2 that I -- the 2 areas that I like the most, as I think about this business longer-term on the consumer front is even post COVID, more people will be working from home.

Whether it's 1 day a week or 5 days a week, you've heard various companies announce a more flexible work environment. And as those consumers are working from home, they're going to be using more tissue at home.

So I think that's a step change that's going to happen in the North American market for many years to come. I think the other thing that's going to happen post-COVID is more people are going to clean.

And I think the paper towel demand in particular will also be a behavioral change that will last post-COVID. So I think retailers are seeing that.

They recognize the fragility -- not the fragility, I would say, the criticality of having a strong supply chain, especially when there's spikes. And I think they're working closely with us and I'm other tissue companies to make sure that they solidify their supply beyond Q4 into '21, '22.

And so if your average consumer holds X number of weeks of tissue at home, being at home more will increase the actual roles of tissue that they need to buy to maintain that level. Do you think that they also increased the number of days on average, given that there were some shortages that they might want to ensure against?

Yes. I think that we know there's been some pantry loading, for sure, Zachary.

We know that consumers stocked up because they weren't sure if they were going to get to a grocery store, they weren't sure if they got there, there was a good products on shelf. We saw some deloading of that in tissue -- bathroom tissue over the summer as people got more comfortable with supply.

And then we saw a bit of a tick up in the last month or so, really since, let's say, early September on bathroom tissue, but particularly paper towel. So yes, they have been doing some inventory build.

I think they'll keep those inventories high until we're through this. So I don't think they'll go back to their normal supply at home.

They'll probably keep a an extra package on hand. So that will probably expect to stay and then slowly diminish as we get out in 2021 and depending on what's going on with COVID.

Wanted to ask on your market share gains and the outlook for that as well. We've seen some nice gains in recent quarters.

Would you attribute that entirely to your marketing efforts? Or do you feel like you're producing and shipping perhaps more efficiently than some of your peers?

And how does that translate into potential future market share gains in your opinion?

Yes. I think that's a great question.

I think it's a combination of few things. So first of all, I would say I'm very happy with how we've been able to supply our customers.

We haven't been perfect, but we've been good and in some cases, better than competitors out there. So clearly, that has helped.

The second thing that has helped is our marketing efforts and the comfort of our brands. The third thing that has helped is, I think, the strong customer relationships that we've had across North America in working with our customers in being transparent in being open about our products, our supply, how we manage the customer account.

The fact that we were fair and equitable in how we allocated our product, the fact that we did not take pricing, how can we work with them on how they should manage their promotion strategy to make sure that they we're successful in the market but had product on hand. And in fact, there's a survey in the marketplace that's called the Advantage survey, which basically -- this is the Canadian aspect of it, basically asks our customers how are suppliers performing, and it's -- there's a list of 21 suppliers, it includes food and health and beauty, household products, et cetera, all the big names.

And this was done in June, July, post -- kind of post the COVID start, and we ranked #1 across multiple dimensions. So I think it is a testament to the work we have been doing with our customer base, not just this year, forever, and I think paying dividends now that is helping the success of our brands.

Great. And second question is on Away-From-Home.

Obviously, I understand that this is a very fluid situation, and I appreciate your comment on future trajectory of the revenue line there. On the profitability front in Aware-From-Home, we saw a bit of a step back in Q3.

I just wanted to get your thoughts on the outlook for that in terms of what you can do internally to perhaps improve on the profitability here?

Yes. It's another great question.

I alluded to it. So there's 2 things going on in AFH that have been the headwinds, if you will.

One has been a well-told story about what's going on in the market. And by the way, there are aspects of that it at least that are doing well.

Our towel business is doing well, as I mentioned. We're doing better in the U.S.

than we are in Canada in AFH. We've been a little more nimble in finding opportunities in the U.S.

and Canada. We're fairly saturated.

It's hard to find those opportunities. So AFH, even though the numbers are down, there are bright spots that I haven't totally highlighted, but there's some good trajectories there that we're going to continue to exploit.

The other headwind, though, and this is a bit of a theme that happened over the last couple of years that has been exacerbated now is that with our Consumer business doing so well, all the paper we produce is moving to Consumer and AFH is -- even though the business is down, is needing to go on the market to buy paper in particular. So they're paying an up-charge for that paper.

It's the right thing for our company to do from a business point of view and from a profitability point of view, but it does show up, unfortunately, on the AFH P&L. That will probably be there for a bit.

When we bring TAD2, hopefully that will alleviate some of those pressure points. But that's the second headwind that's happening there.

What that team is doing is they -- we took some temporary shutdowns at our facilities over the summer, and we still have -- we brought people back gradually. So we have a flexible work opportunity there depending on how our business is doing.

We are looking at our SG&A line. We did some pricing, as I mentioned earlier, where we had the opportunity to do that.

We are looking at more consumer-like products and consumer rate channels, if you will, that are mix between Consumer and AFH channels, working with our distributors. So I think the team is doing a lot, and they're developing a strategic plan about how this business is going to grow over the next 5 years and where they want to be.

And I think that's -- we're midst of doing that. So I think they're doing the right things.

I think we just got to get out of this -- we've got to get the end markets back, and I think we'll be ready to take advantage of that and be successful.

I just want to thank everybody. It's been a crazy year for all of us.

Obviously, I'm very proud of what our organization has done and what our business has done. And as we're in the midst of planning for next year, there's a lot of moving pieces, and we want to make sure that we continue to win, not just in the short term, but the long term.

So I just want to leave you with those comments. I do want to thank you for joining us on this call this morning.

We look forward to speaking with you again with the release of our fourth quarter and year-end results early next year. In the meantime, I wish you all much health, and we'll see you in the new year.

Thank you.